MARKET ANALYSIS

There’s been some slight “Sell in May” activity, but the bulls might want to put on something more than just sunscreen as conditions look to be heating up. For the three-day period the Naz’100 (QQQQ) and “SPYder” (SPY) are off .47% to 1.22% on distribution and headline-worthy breaks of support in the market’s confirmed, but teetering rally.

All told, it continues to be a mixed bag of anecdotal and well-meaning headlines of what’s moving investors. For the most part, those reasons also continue to be wrong. However, they do enjoy the ability of lending some rhyme and reason to the daily gyrations, as well as keeping the market a more entertaining place for those reading more than just headlines.

The latest version of the truth goes something like, ““US Indexes Fueled by Same-Store Bargains and Surging Oil Relief.” Meanwhile, most of Thursday’s heralded bargains, names like Costco (COST), JC Penney (JCP) and Kohl’s (KSS) managed to stay on the discount rack after the Opening Bell ceremonies. At the same time, while I may have taken creative liberty of what fresh all-time-highs in crude means to investors, 2.00% to 2.75% gainers in the influential energy complex (XLE, OIH) does enjoy more than its share of “responsibullity” for Thursday’s clinging cash index gainers.

Market Snapshot

Figure 1: S&P500 (SPY) Weekly

Since the bulls got caught noshing last Friday into a sandwich of resistance, the broader market has endured four sessions of technical hemming and hawing. That’s typically a good sign. But, as written in this week’s HOTSHOTs, the body of evidence has increasingly turned less favorable for investors still looking for higher prices out of the market’s confirmed rally.

Looking above at the weekly S&P500 (SPY), it appears that a nice healthy rally sporting a few weeks of overall consistent long-minded opportunities, has taken on the shape of a rising bearish wedge into resistance. With several confirming cautious-to-bearish confirmations listed below, 1% to 2% and / or a likely one to three more days of backing and filling is thought necessary before giving any real consideration that the intermediate rally is in position for higher prices.   

The following factors and anecdotal evidence might be considered relevant in determining a suitable, limited-risk strategy in the coming days and weeks ahead.

MARKET LAB

Bullish Technicals

• FTD in place, confirmed uptrends NDX, SPX & DJ-30.
• Consensus survey.

Bearish Technicals

• Five year up cycle since October 2002 lows.
• Weekly H & S Top DIA with daily MA “Death Cross”
• 20-week bull phase until late April.
• Sentimentrader.com Dumb $$ cross.
• VIX test of December lows.
• “Sell in May” market lore tendency.
• 8-week cycle off March lows.
• AAII Sentiment Survey.Distribution count one month @ four days for SPX. Concern over consistency of growth triggers out of bases.

GROWTH STOCK ANALYSIS

IBM (IBM) triggered Thursday out of a ‘rare’ three-week flat base at 125.10. Volume was also well-above average. However, a closing price of 124.92 did fail to follow-through intraday. More important to some traders, volume didn’t come in higher than the prior session’s levels. Personally, the volume thing has always been viewed as a bit of a Catch-22. First and foremost, prints can get posted at the last minute and even beyond, to make the technical picture look radically different than just moments earlier.  

That being said, when presented with an actual price trigger at our ideal price, traders have to use their best judgment while knowing the information is likely, less than perfect. In saying that though, I do still like Thursday’s breakout in IBM and despite my short-term concern for the broader market. However, I’m not here to make recommendations. This is, of course, just one trader’s observations. However, on that note and given the body of evidence, if I was interested in Big Blue going “Big Green”, I wouldn’t see a stop loss of 7% to 8% as being necessary to handle that particular situation.  

RADAR SCREEN

The following optionable stocks look to have a combination of technicals and fundamentals that might warrant further investigation based on a trader’s own methodology and risk acceptance. The list is not a recommendation and is intended for educational purposes only.

The Bulls

Table 1: Bull Watch list

Non-Directional “Coiled Springs”

Table 2: Basing Watch list

The Bears

Table 3: Bear Watch list

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
Visit Chris Tyler’s Forum
 
The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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